Management Services, Inc. provides services to clients. On May 1, a client prepaid Management Services $60,000 for 6-months services in advance. Management Services' general journal entry to record this transaction will include a
A) Debit to Unearned Management Fees for $60,000.
B) Credit to Management Fees Earned for $60,000.
C) Credit to Cash for $60,000.
D) Credit to Unearned Management Fees for $60,000.
E) Debit to Management Fees Earned for $60,000.

Question

Quizplus · Accepted Answer

When a client prepays for services, the payment is initially recorded as a liability known as Unearned Revenue. Therefore, Management Services will record this transaction with a credit to Unearned Management Fees for $60,000 to reflect the liability owed to the client. The corresponding debit will be to Cash for $60,000 since the payment was received in cash.